Spurious Regressions in Financial Economics?

36 Pages Posted: 6 Sep 2002 Last revised: 26 Dec 2022

See all articles by Wayne E. Ferson

Wayne E. Ferson

University of Southern California; National Bureau of Economic Research (NBER)

Sergei Sarkissian

McGill University; University of Edinburgh

Timothy T. Simin

Pennsylvania State University

Multiple version iconThere are 2 versions of this paper

Date Written: September 2002


Even though stock returns are not highly autocorrelated, there is a spurious regression bias in predictive regressions for stock returns related to the classic studies of Yule (1926) and Granger and Newbold (1974). Data mining for predictor variables interacts with spurious regression bias. The two effects reinforce each other, because more highly persistent series are more likely to be found significant in the search for predictor variables. Our simulations suggest that many of the regressions in the literature, based on individual predictor variables, may be spurious

Suggested Citation

Ferson, Wayne E. and Sarkissian, Sergei and Simin, Timothy T., Spurious Regressions in Financial Economics? (September 2002). NBER Working Paper No. w9143, Available at SSRN: https://ssrn.com/abstract=328695

Wayne E. Ferson (Contact Author)

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Sergei Sarkissian

McGill University ( email )

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Timothy T. Simin

Pennsylvania State University ( email )

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